Loan Modification Options After Forbearance

If you were placed on a COVID-19 Forbearance plan, your plan is likely coming to an end. It’s now time to start thinking about resuming regular monthly payments.

Mortgage lenders told many people that the transition would be “easy” and that the homeowner could expect to just “pick up making regular payments” when their forbearance is over.

What the lenders didn’t tell you was that you need to ask for be approved for some sort of transition agreement before you can resume making regular payments.

Before settling on a modification, make sure it’s right for you

Below are the options available to help you transition off your forbearance and back to regular payments:

• Reinstate (or pay) the full amount of payments you missed during your forbearance period: Many people cannot pay all the amounts they missed at once, so very few homeowners choose this option. Learn more about the challenges of reinstatement.

• Enter into a repayment plan with your bank: A repayment plan is an agreement with your bank where you resume a regular mortgage payment and pay extra each month on top of the regular mortgage payment until you’ve paid off your arrears. These plans often have payments that are the equivalent of a double mortgage payment. They can be unaffordable, so many homeowners do not choose this option either

• Enter into a “payment deferral agreement” or “standalone partial claim”: A payment deferral plan or partial claim means that your mortgage lender defers the amount of payments you missed during your forbearance and agrees to make them due at the maturity date of your original mortgage. The amount you missed sits as a non-interest bearing lump sum that becomes due when your mortgage matures. You then resume your regular payments under your original mortgage agreement. The amount of your mortgage payment will be whatever it was prior to COVID.

• Enter into a loan modification agreement: A loan modification is a new agreement that wraps the amount of payments you missed during your forbearance in a new loan, with a new balance. Loan modifications have new terms (sometimes, a lowered interest rate or a lowered monthly payment) and an extended maturity date.

The type of loan modification program available to you depends on who the investor on your loan is.

Your investor is the party who makes the decision about whether you get offered a loan modification so your first step is to figure out who your investor is.

Most likely, you have one of the following investors:

• Fannie Mae
• Freddie Mac
• FHA
• VA
• USDA

After your forbearance, you may be able to get a loan modification without submitting any documents

If you meet the criteria below, you may be able to get a streamlined loan modification review:

• You were on a COVID-19 Forbearance plan
• You have one of the government-backed investors listed above
• You were current on your mortgage prior to the start of the pandemic (March 1, 2020)

Streamlined means that your mortgage lender will review you for a loan modification without requiring any financial documents from you.

If you do not have one of the investors listed above OR you were in default prior to March 1, 2020, it doesn’t mean that you don’t get to apply for a loan modification.

It just means that your lender will likely require you to submit a financial package and loan modification application as part of the process.

Don’t let too much time pass between the end of your forbearance and requesting the modification

If your forbearance plan has already ended, call your lender as soon as possible to start your modification review.

If you are 30-days or less away from your forbearance plan ending, call your lender as soon as possible to start your modification review.

If you leave too much of a gap in time between when your forbearance ends and when you apply for your transition, you run the risk of the bank starting to report you as delinquent to the credit agencies.

If you qualify for a streamlined review, be prepared for the questions the bank will ask you

Once you are ready to transition off of your forbearance plan, call your bank’s loss mitigation department and tell them you would like to be reviewed for a loan modification.

The lender will ask you a series of questions that will sound something like this (the questions vary slightly depending on the servicer):

1. Has your hardship been resolved? (Say “yes” if it has)
2. Is this your primary residence?
3. Are you able to resume your regular monthly payment at the same amount you were before COVID? (If you want to be reviewed for a loan modification, you should answer “no” to this question. If you answer this “yes,” the lender will likely try to offer you a payment deferral option, not a modification. If you want the payment deferral option, answer “yes”).
4. Are you able to resume payments but would like to see if there are any options for a lowered payment? (Answer “yes” to be reviewed for a loan modification).
5. Are you able to sign documents related to your home?

After you answer them, the lender will tell you the expected timeframe to get a decision back on the modification request.

Some banks are quoting very short timeframes (like 10 days or so) but very rarely will you get a decision back in this short of an amount of time.

More commonly, it will take about 30-days for the review to be completed.

If you get approved, you will receive a document package with loan modification documents for you to review, sign and notarize.

If a streamlined modification is not available to you, apply for a loan modification

If you were on a COVID-19 forbearance plan and do not qualify for a streamlined option, that may be because:

• Your investor is the VA (in some capacities, they have retained the ability to review your finances before offering you a loan modification)

• You have a private investor (not Fannie Mae, Freddie Mac, FHA, VA or USDA) and the private investor requires a loan modification package

If this is the case, you will be going through the standard loss mitigation department to complete a loan modification review with the required loan modification documents.

Note: You may get told that you have to send in a document package if the bank thinks that you declined your streamlined option in some way. If you don’t think this is accurate, you may want to reach out for help. Some people are getting “decline” notices due to issues with their online portal. If this is happening to you, I would recommend you reach out for help before just agreeing to submit documents.

In sum, you do NOT have to pay back all your missed payments if you’re transitioning off a forbearance plan

If you are a Washington homeowner who was on a COVID-19 forbearance plan and you’re ready to transition back to regular payments, feel free to give me a call at (425) 654-1674 so we can discuss the transition.